Interview Question of Accounting

Accounting: - It is Art of Recording Classifying, Summarizing in a

significant manner in term of money transaction.

Accounts Payable:- The Amount owned by a business to creditor such as

supplier e.g.(Raw Material) Accounts payable are classed as current
liabilities on the Balance Sheet.

Accounts Receivable:- The Amount owing to a business from customer for

invoiced Amount. Accounts receivable as Current Assets on the Balance
Sheet.

Debtor:- A Person who receives money or money’s worth by giving a

promise to pay the same in future is known as Debtors. In other words
Debtors is a person who owes money to the business.

Creditor:- Creditor is a person to whom the business owes money.

Golden Rules of Accounting

1. Personal Account: Debit the receiver

Credit the giver.

2. Real Account: Debit what comes in

Credit what goes out

3. Nominal Account: Debit all expenses and losses

Credit all incomes and profit.

4. Personal Account:- Debtors & Creditors

Records transactions with Persons, Drawings, Banks a/c, Capital a/c of
properties.

Real Accounts:- Property(Land & Building, Plant & Machinery,

Investments, Stock, Cash, Furniture, Good Will).

Nominal Accounts:- Can’t See (Light, Heat, Bad debts,

Investment,Rent,Salaries).
General Reserve or Provision:- Usually the businessman don’t with draw the
entire profit form the business but retain a part of it in the business to meet
unforeseen future. An Amount set aside out of profit in the account of an
organization for a known liability ( even though the specific amount might
not be known) or for the diminution in value of an Asset.

Capital Expenditure:- If an Amount is spent in purchase of an Asset. E.g.

Furniture, Machinery etc. It is called Capital Expenditure. The Asset is
retained permanently in the business to earn an income for the business.

Revenue Expenditure:- If an Amount is spent in maintaining an Asset in a

workable order e.g. Repair to plant, repair to building.

Deferred Expenditure:- They are expenses which are of Revenue Nature,

but the debiting of the same is postponed over a period of time.
Advertising expenditure, Sale Promotion Expenditure even though spent
in one year the benefit will last for 2 or 3 years.

Invoice:- It is bill sent by a seller of goods to the buyer stating details of

the quantity, quality, price, date.

Purchase Return:- The company return goods to our suppliers or creditors

due to poor quality, packing etc. Return of goods is known Purchase
Return.

Sales Return:- When Customers Return goods to company known as Sales

Return.

Revenue: Revenue or income refers to the earnings of the business. It

includes the sale proceeds of goods, receipts for services rendered and
earnings form interest, dividend, rent, commission, discount, etc.

Bank Reconciliation statement: It is the statement where in the causes

responsible of the difference between the cashbook balance and the passbook
balance are established and suitable adjustments are made to remove them
i.e., the causes responsible for the disagreement. So that the two balance can
reconcile or agree with each other.
Who prepares the BRS? The BRS statement is prepared by the customer, and
not by the banker. It can be prepared only by the customer, because it is only
the customer who has the knowledge of his bank transactions and the bank
balance as per the cash book and the bank balance as per the pass book which
are required for the preparation of the bank reconciliation statement.

When is the BRS prepared? The bank reconciliation statement is prepares as

on a particular day. It is prepared periodically, usually, at the end of every
month.

Where is the BRS prepared? The reconciliation statement be neither a part of

the journal or subsidiary book nor a part of the ledger, so it can be prepared
in any of the books of account (i.e., either in the journal or subsidiary book or
in the ledger) or even on a separate sheet of paper. But, usually, for the sake
of convenience, it is prepared in the cash book itself on the last page of every
month.

Profit and Loss a/c: The Profit and Loss a/c is a account which shows which
shows the net profit or net loss (i.e., the ultimate profit or loss) of a business
of a particular trading period. The net profit or net loss is the profit earned of
loss suffered after charging all business expenses (including depreciation and
provisions). It is the final profit or loss of a business.

Balance Sheet: The trading and profit and loss a/c shows only the net profit
or net loss of a business for a certain trading period. But a trader likes to
know not only the net profit or net loss of his business for a certain trading
period, but also the financial position of his business at the end of the trading
period. For this purpose, he prepares a statement of his assets and liabilities
(including the capital) as on the closing date of the trading period. The.
Statement of assets and liabilities prepared on the last date of the trading
period is known as the “Balance Sheet”. In short, as balance sheet is sheet
containing the balance of real and personal accounts (i.e., balance of assets
and liabilities) of a business.

Rectification of errors: Errors in the books of accounts should not be rectified

by erasing (i.e., removing) or striking off (i.e., canceling) the wrong entries
and writing the correct entries, because such a procedure is possible only if
the errors are detected immediately. Further, such a procedure reduces the
reliability of the entries in the books and makes the books untidy. So errors
have to be rectified either by means of necessary adjustments in the concerned
accounts or by means of journal entries.

Purchase Book:
Goods purchased by a business are called purchase. The purchases of goods
may be cash purchase or credit purchase. The purchase goods are recorded in
purchase book.

Purchase Return’s Books: For recording only return of goods bought on

credit and allowances claimed in connection with goods brought on credit.
Return of goods brought for cash should not be recorded in purchased
returns books. Generally, cash received for such returns, and so, such returns
should be recorded in the cash book.

Sales Book:
Goods sold by a business are called sales. The sales of goods may be cash
sales or credit sales. The sales of goods are recorded in sales book.

Sales Returns Book: Return of goods sold for cash allowances granted in
connection with goods sold for cash should not be recorded in sales returns
book. Generally, cash is paid for such returns, and so, such returns should be
recorded in the cash book.

What are tangible assets

They are the assets or things, which can be seen and felt, may be movable or
immovable. For ex: furniture, buildings etc.

Examples of intangible assets.

Which cannot be seen are called intangible asset
E.g. Patents and copy rights, goodwill etc

Pre-paid expenses or expenses paid in advance.

Some time, it is found that a portion of certain expenses like insurance
premium, rent, etc. paid during the current period relates to the next period. So
much of the expenses paid during the current period, but relate to the next
period are known as “prepaid expenses” or expenses paid in advance

Income received in advance.

Sometimes income may be received in full in advance before the actual service
is rendered. Then such income should not be considered as income of the
accounting year, such income belongs to next year. Therefore it becomes a
liability.

What are bad debts

It is the common experience of every trader that some of the debtors may not
pay the debts in full to one or the other, such debts which are not recoverable
are called bad debts and will have to be written off.

What is depreciation?
Assets owned by trader like furniture, plant and machinery, provision etc will
have certain life of utility to the business and they decrease in the value year
after year due to wear and tear on account of use in the business. Such decrease
in value is called depreciation.

What is contingent liability?

It is a liability arising from the past events the existence of which will be
confirmed only by the occurrences or non-occurrence of one or more uncertain
future events not wholly with in the control of the enterprise. Ex; forward
exchange contracts.( which may or may not occur)

What is the difference b/w gross profit and net profit?

Gross profit is the profit after deduction of direct expenses and before indirect
expenses/operating expenses. Net profit is the profit after deduction of all
expenses
(Direct and indirect expenses etc.)